Press Release

VIS Maintains Entity Ratings of Metco Textiles (Pvt.) Limited

Karachi, October 6, 2023: VIS Credit Rating Company Ltd. (VIS) has maintained the entity ratings of Metco Textiles (Pvt.) Ltd. (METCO) at 'A-/A-2' (Single A Minus/A-Two) with revision in outlook from 'Stable' to 'Negative'. The medium to long-term rating of 'A-' denotes good credit quality with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. The short-term rating of 'A-2' signifies good certainty of timely payment with sound liquidity and company fundamentals. Access to capital markets is good and risk factors are small. Previous rating action was announced on July 04, 2022.

Ratings take into consideration the deterioration in the demand and supply dynamics of the textile sector owing to shortage of cotton crops, severe currency devaluation, heightened inflation and soaring policy rates over the rating review period. The revision in outlook reflects weakening in overall financial risk profile of the Company in lieu of subdued margins and challenging macroeconomic environment. However, the ratings also factor in the addition of a new manufacturing unit for CVC and PC yarn which came online during Feb'23, allowing for the diversification of the product mix going forward. Full year impact of the expansion would unfold over time.

The financial risk assessment takes into account slowdown in revenue growth, subdued profitability and liquidity indicators and elevation noted in capitalization indicators. Decline in sales during 9MFY23 on an annualized basis was attributable to drop in demand. Additionally, with shortage of local supply and steep currency devaluation, prices of cotton rose significantly which adversely impacted the gross margins. This along with elevated finance costs narrowed net margins. In line with the same, lower cash flow coverages against outstanding obligations and debt-payment capacity was witnessed in the review period. Gearing and leverage indicators also escalated due to increase in long-term borrowings to finance capacity expansion, albeit, mostly at concessionary rates, and short-term borrowings owing to higher working capital requirements. Ratings will remain sensitive to meeting projected topline targets and improvements in debt-servicing capacity over the mid-term.

For further information on this ratings announcement, please contact the undersigned (Ext: 207) on 021-35311861-64 or email at

Sara Ahmed

Applicable Rating Criteria: Industrial Corporates (May 2023)

VIS Issue/Issuer Rating Scale

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